Eric Balsley
Russ Dunlap
Dave Jaggard
Brad Patt
Jordana Weiss
Agrium CorporationFertilizer Production
in Brazil
Agrium Potash• 5% of global potash supply• Concerns Moving Forward
•Overreliance on Canpotex for intl. dsn.
•Distance from growing markets•N.A market growth slowing•Growing organic sector
Price of Potash
Brazilian Market• Currently imports 90% of potash (1st)
• Largest in world
• World’s 3rd largest potash reserves• Self sufficient in 10 years•$1.8B/year potential market• 4.1% growth rate (3rd)
Competition in Brazil• Distribution Conglomerates
• Canpotex (70% of dsn)
• Large Mining Companies• Vale – Own potash mines, Brazilian• BHP Billiton - capacity
• Existing Potash Companies• Cargill (Mosaic) and Bunge
Political Considerations Federal Republic, robust checks & balances (1988- ) Respected world citizen, WTO & IMF member Socialist/populist leanings
RISK DESCRIPTION ASSESSMENT
Expropriation Risk
Agrarian land expropriation in 1960’s-70’s
Stability of current government mitigates risk adequately
Property Rights Protection
Contracts considered secure
Legal system unreliable
Include arbitration/mediation provisions in contracts
Labor Market Risk
2/3 Rule
Terminations costly & difficult
Payroll tax relatively high
Hire carefully
Support ops from global HQ when possibleRegulatory Risk Possible market interference:
-Price controls
-Special treatment
Work cooperatively & transparently with government
Market Entry Recommendation Produce fertilizer in Brazil via JV Focus on large-scale wholesale market
Joint Venture Characteristics Leverage Agrium’s capabilities in manufacturing & logistics Partner with other multinational (BHP, Cargill/Mosaic) 30% share in $0.9-$1.1B investment in mining & production
Risk assessment Financial & political risks moderate & manageable Domestic entry aligns with government Preserves Agrium presence in Brazil JV model spreads risk & overcomes holdup problems